KUALA LUMPUR (Oct 2): Escalating tensions in the Middle East triggered a broad sell-off in the Malaysian stock market, with the benchmark index falling to a three-week low.

Fund managers whom The Edge spoke to said market sentiment may turn cautious in the near term, though the selling pressure could just be a knee-jerk reaction to the latest developments in the Middle East.

Tradeview Capital chief executive officer Ng Zhu Hann suggested investors increase their cash holdings to manage market volatility, given the geopolitical risks in the Middle East as well as the upcoming US presidential election, which is considered the biggest risk factor in the last quarter of the year.

"Being highly invested ahead of major market events is not prudent. Increasing cash allows for strategic buying if the market corrects significantly," he told The Edge.

Fortress Capital founder and CEO Datuk Thomas Yong said investors with a shorter term trading strategy might want to be cautious in the near term.

“For longer term investments, investors will likely stay invested in the market,” he added.

He said investors are worried that the escalation of tensions in the Middle East might elevate crude oil prices and create further uncertainty in the geopolitical landscape.

“If energy prices soar over a prolonged period, that might affect global growth. Further escalation in the war may cause disruption in logistics.”

Meanwhile, Areca Capital Sdn Bhd CEO Danny Wong sees the sell-off providing a good opportunity for bargain hunters following the benchmark index’s strong performance so far this year.

Reiterating that market fundamentals remain intact, he said investors should continue to stay invested.

"The sell-off in the local equity market was due to the Middle East tensions. It was dragged down by sentiment, but fundamentals have not changed,” he opined.

The FBM KLCI tumbled as much as 23.31 points or 1.4% to an intraday low of 1,633.08 points. At market close, it dropped 17.08 points or 1.03% to 1,639.31 points, the lowest since reaching 1,638.31 points on Sept 12.

There were a total of 874 losers on Bursa Malaysia, against 270 gainers.

Meanwhile, the FBM Small Cap Index fell 1.01% to 17,388.13 points, and the FBM ACE Index declined 1.68% to 5,125.82 points.

Among the top 30 FBM KLCI component stocks, Sunway Bhd (KL:SUNWAY) led the losses, dropping 12 sen or 2.82% to RM4.13. Axiata Group Bhd (KL:AXIATA) fell two sen or 0.82% to RM2.43, and Genting Bhd (KL:GENTING) declined 10 sen or 2.35% to RM4.16.

Almost all sectors on Bursa Malaysia lost ground, with the biggest loser being the property sector (1.66%), followed by industrial products and services (1.62%) and utilities (1.5%). Energy was the only sector that delivered positive returns of 1.01%.

Bursa’s total trading volume stood at 3.86 billion units, with a total trading value of RM2.73 billion.